Reserve Bank Governor Shaktikanta Das on Thursday said there are no systemic worries and the action on Paytm was driven by a "lack of compliance" at Paytm.
Deputy Governor Swaminathan J said the actions against the fintech have been taken due to "persistent non-compliance".
The Governor declined to specify the specific shortcomings resulting in the RBI action but made it clear that it is driven by a "lack of compliance" at Paytm.
Stressing that the Reserve Bank of India (RBI) is a responsible regulator, Das asked why should the central bank act against a regulated entity if it has complied with all the requirements.
The RBI works with entities on a bilateral basis, nudges them to comply by giving sufficient time, and imposes business restrictions or supervisory actions only when the entity does not take necessary actions, Das said.
"When constructive engagement doesn't work or when the regulated entity does not take effective action, we go for imposing business restrictions," Das said, adding that the actions are "proportionate" to the gravity of the situation.
The actions are driven by systemic stability or protection of depositors or customers' interests, he added.
The Governor also affirmed the Reserve Bank's commitment to support innovation in the financial sector, saying there should not be "any doubt" around it.
Acknowledging that the RBI has received feedback from the wider public, Das said the RBI will be coming out with a set of FAQs (frequently asked questions) to assuage the concerns.
On the other hand, Paytm has also reacted over the comments made by Deputy Governor Swaminathan, saying, "We assure our users and merchant partners that the Paytm app remains fully operational, and our services are unaffected. Paytm continues to lead in mobile payments innovation and we are accelerating our partnerships with banks to offer uninterrupted services. We assure our merchant partners that Paytm QR, Soundbox and card machines will continue to work as always. Our dedication to providing seamless payment solutions and promoting financial inclusion across India remains as strong as ever."
